Andrew Charlton (Parramatta, Australian Labor Party) Share this | Hansard source

I rise to support the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. The Australian corporate taxation system is an important pillar of our fiscal structure, and it's very important that we get that pillar right. If we don't then we face Australia becoming uncompetitive in global capital markets and we won't attract the investment that Australia has always needed to build our economy and fuel our economic growth. We want to make sure that foreign investors have confidence in Australia and get a strong return for the investments that they make here. Those investments build our companies, build our infrastructure and develop us as a nation.

But, when we don't get our taxation system right, we can create a series of problems that reverberate right through the economy. One of those problems is a significant revenue shortfall. When multinationals don't pay their fair share of tax, it means that other Australian companies and individuals have to step in to pick up the burden. The second problem is that it creates a lack of competitiveness: the level playing field disappears, and Australian domestic companies are at an unfair disadvantage to their foreign competitors. We need to make sure that Australia's corporate taxation system works for Australia and works for our investment partners.

Right now, Australia's company tax system is incredibly concentrated. Over the last several years, on average, just 10 Australian companies have paid a third of all corporate tax receipts in Australia. Those are familiar names to all of us. There are the miners. BHP pays $7.3 billion in tax. Rio Tinto pays $6.1 billion in tax. Fortescue pays $5.7 billion. The banks are very large taxpayers in Australia. There are also the supermarkets. Coles pays $455 million, and Woolworths pay $636 million.

These, together with a handful of other companies, pay a third of all the company tax in Australia. There's something that unites all of those companies: they're all domestic companies.

One thing that you rarely see on the list of high corporate tax payers in Australia is foreign companies. In fact, foreign companies are overrepresented in the third of Australia's big companies that pay no tax in Australia. Those companies listed in the tax transparency information include Adani, Alcoa, Anglo American, a number of entities owned by Glencore, BP and Viva. Many of these companies are doing the right thing. Many of these companies are following the law. They might have made significant capital investments and have big deductions as a result of those investments. Some of them were impacted by the pandemic. Qantas, for example, paid almost no corporate tax, because of the impact of the pandemic—completely understandable. Some companies have very significant periods before they become profitable, and they too will, very legitimately, pay no corporate tax. But the preponderance of low corporate tax payments by foreign companies is a perpetual issue in the transparency statistics, and it's an issue that we need to look at very closely.

We're not blaming businesses for following the law, but we are saying that that law needs to be tightened so that our system has integrity and everybody pays their fair share. We know that, regrettably, there are many actors out there who would wish to thwart the integrity of our tax system. We've seen, through the recent PwC saga, a number of companies taking advantage of information to restructure their affairs to minimise their tax. PwC did the wrong thing. Part of what they were doing was supporting foreign companies to find loopholes and other ways to reduce the contribution they make to Australia—a country where they earn their revenue and where they have millions of customers, but where they often pay desperately little tax. We know, from the information that has been revealed through inquiries into PwC, that they advised a number of foreign companies, including Uber and Facebook, to set up new structures to minimise their taxation based on information that they gleaned dishonestly from the public sector. Uber and Facebook were doing what they were doing. There's no suggestion they broke any laws, but there is a suggestion here that foreign companies are constantly looking for loopholes, and actors like PwC are helping them to find those loopholes.

The problem with this situation is that, if foreign companies do not pay their fair share of tax, other Australians have to step into the breach. We have a situation now in many industries where we have a domestic player and a foreign player, and the domestic player is at a disadvantage. For example, many retailers now face competition from foreign players who pay no tax, but domestic retailers pay a lot. Coles and Woolworths collectively pay a billion dollars in tax. Some of the foreign entrants that are gaining share in Australia pay almost nothing. We need to make sure that we have a level playing field in Australia so that we don't disadvantage Australian companies and Australian households that suffer from this low taxation because they have to step in and pay higher tax themselves.

The bill in front of us today is an attempt to fix many of those loopholes, to address the problems of integrity and transparency in our tax system. It does follow a global effort to curb multinational tax evasion. This has been a long process, and, for many of us who follow it closely, a very painfully slow process. It is a process that we wish was happening more quickly and yielding greater dividends to communities around the world. In 2012, the G20 met and discussed how to stop base erosion and profit shifting strategies used by companies to exploit loopholes in tax laws. In 2013, we had the report on base erosion and profit shifting, which delivered an action plan on those initiatives. That report acknowledged that effective taxation of mobile income is one of the key challenges facing economies around world today. It also encouraged us to not allow multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.

We're on a journey to solve this problem but we have a long way to go. There are many multinational corporations that are taking advantage of low-tax jurisdictions, and they're taking advantage of a number of loopholes that enable them to do so. The number of big foreign companies in Australia that pay massive royalties or other payments for intellectual property to foreign parents who just happen to be in low-tax jurisdictions is an outrage. These companies are simply taking money from Australia—from Australian citizens—and shifting it to low-tax environments.

We have desperately little information about these internal royalty payments, which have the effect of reducing the profitability of the Australian entity, increasing the profitability of the foreign entity in the low-tax jurisdiction and therefore shifting tax dollars from Australia to those low-tax jurisdictions. We have very little information because there is so little transparency. What do those royalties mean? What are those companies paying for in terms of this intellectual property? I don't doubt that there is significant investment in these big multinational companies' headquarters that does require some recompense from jurisdictions around the world, but it seems that these royalty payments are going way beyond that. These royalty payments are less about compensating for investments in intellectual property in those jurisdictions and much more about shifting tax liabilities. That's why often you find that, not coincidentally, these companies are domiciled in low-tax environments. We have very little information about that.

The second incredibly common loophole is the use of debt instruments, where a multinational corporation with a subsidiary in Australia lends that subsidiary large amounts of money through intercompany loans, and the Australian subsidiary then has to pay back the interest on those intercompany loans. That interest reduces the profitability of the Australian entity. As a consequence, the entity has very little reportable profit and—surprise, surprise!—it pays very little tax. Again, we have very little information to judge the merits or appropriateness of that type of intercompany loan. We don't know how big it is and we don't know what that loan is for. Once again—without casting aspersions on any individual company's behaviour—it seems the pattern is driven more by tax than by operational concerns.

In seeking to deal with these things, this bill contains two proposals: firstly, to amend the Corporations Act 2001 to force companies to disclose their subsidiaries in their annual financial reports; and, secondly, to amend our thin capitalisation rules to make sure that multinational companies pay their fair share. Under the Corporations Act, a company's annual financial report must contain the following: the company's financial statements, notes to the financial statements and a report from the company director. Schedule 1 of the bill in front of us would amend these requirements to enforce a disclosure of the company's subsidiaries within their financial statement, to give us a bit more information about how the company is structured so we can have a bit more transparency about its tax affairs.

The thing is that most companies already do this. We commend them for that; that is a good thing. This is about making sure that all companies follow the same good practice—that they're up-front about their subsidiary structures so we have information that enables us to understand the way the company is structured internally, to give some justification to the way that they conduct their tax affairs. In these declarations multinationals would need to include the name of each subsidiary; the residency of each subsidiary; whether it's a partnership, trust or body corporate; and, if it's a body corporate, the public company's ownership percentage.

This proposal follows best practice that has been implemented right around the world. Australia has been a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. We're one of 168 members of the Global Forum on Transparency and Exchange of Information for Tax Purposes. After the measures agreed on by the G20 in 2012, more than 135 countries and jurisdictions have moved to address tax avoidance and improve tax transparency. There is clearly global demand for action on multinational tax evasion, and Australia is doing its part. I want to commend the Treasurer, the Assistant Treasurer and the assistant minister for all of the work they are doing to support the global process and to implement that process here in Australia.

The Treasurer has said that a big focus of the Albanese government is to address multinational tax loopholes, and that is exactly where our focus should be.

Those proposals that I just outlined will help in improving transparency and helping us understand the structure of subsidiaries to justify tax arrangements. Schedule 2 is about the debt issue and what's called thin capitalisation rules. This part of the bill proposes to change Australia's thin capitalisation rules, and these changes will directly address base erosion and profit sharing by reducing the amount of interest expense that multinational corporations can deduct for tax purposes. This will significantly improve tax integrity.

Right now, multinationals can deduct up to 60 per cent of their assets. Under this bill, the threshold becomes 30 per cent of profits. Profit is measured as earnings before interest, tax, depreciation and amortisation. This measure is estimated to gain $720 million in receipts over four years—$720 million is the rightful contribution of multinationals to the Australian state and to Australian citizens, based on their activities here, which, over many years, has been shipped abroad to low-tax jurisdictions.

We do not want to be in that situation. We don't want to race to the bottom around the world, where Australia and other nations are bound by international competition to continue to slash their tax rates and to deprive their citizens of that revenue just because if we don't some other jurisdiction will do it before us and the activity will move there. That's why we need to act as an international community. That's the only solution. But part of acting as an international community is for Australia to take these steps.

I commend this bill. I commend the work of the government's economic ministers. We look forward to continuing on the long journey to improve the integrity and transparency of multinational taxation in Australia, strengthen Australia's corporate tax system and make it fairer and more efficient for all Australians.

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